Credit Cards 101: A Comprehensive Guide for Cardholders
Published on: April 6, 2020 . Last updated: April 7, 2020 Category:
Planning to get your first credit card? Or still deciding whether to get a credit card or not? Get a better understanding of how credit cards work so you can maximize your spending power. Here is a comprehensive credit card for beginners guide to help you get started.
How Credit Cards Work in the Philippines
A credit card is a small plastic card that allows you to spend money via credit to pay for goods or services at local and international stores. It is one of the more convenient, more flexible, and safer payment alternatives to cash and checks. But how exactly can this piece of plastic give you credit?
The process begins when the cashier swipes your credit card on their machine. This will transmit your credit card information to the store’s acquiring bank for validation. If the store’s acquiring bank deems your credit card valid, it will approve your purchase and add it to your overall credit.
The cashier will print the receipt containing the transaction data and you will then be asked to sign it. Signing on the receipt means you agree to pay the amount you owe to your issuing bank.
Your issuing bank will consolidate the credit card charges you made into a statement and send it to you every month. You can pay the minimum amount due, but it is better to pay your credit in full before the due date to avoid extra fees.
The same process also applies when you provide your credit card credentials to online shops. In a nutshell, using a credit card means paying with the money you don’t yet have. It’s the concept of “buy now, pay later,” if you will.
Credit Card Advantages and Disadvantages
As convenient as they come, credit cards are not for everyone. By itself, a credit card is not bad—it is how you use your card that affects your finances. Before you decide, consider the benefits and drawbacks when deciding whether to apply for a credit card or not. Here are just some of the compelling reasons to get a credit card for beginners.
- Convenience. Paying with a credit card is faster than paying with cash. No need to withdraw money from the ATM or look for loose change. Just swipe the card and sign the receipt, and your transaction is done. It’s that easy!
- Flexibility. With a credit card, you can make both online and in-store purchases. You can also pay for items like appliances, furniture, and gadgets via installment plans. In fact, it’s advisable to pay using a credit card for expensive purchases.
- Security. Carrying a credit card is a lot safer than having cash on you. Even if your card gets stolen, you can have it blocked to prevent unauthorized use. It’s also safer to use a credit card when shopping online to prevent hackers from stealing your funds.
- Rewards. The most exciting part of owning a credit card is earning reward points. These can be exchanged for perks like gift certificates and air miles. Banks also offer credit card promos such as discounts and freebies to their cardholders.
- Funding Emergencies. Using a credit card may not be the best option for covering sudden expenses like medical bills, but it is extremely useful when something unexpected happens and you do not have enough cash on hand.
- Tracking Expenses. Your credit card provider records all of your transactions and sends it to you at the end of the month. It doesn’t sound much, but this actually helps you track your expenses and avoid reaching your credit limit so soon.
- Building Credit History. If you have not established a credit history yet, using a credit card correctly can help you build good credit records. This will help you qualify for better rates when applying for housing and car loans in the future.
Credit cards also have their fair share of drawbacks. After knowing the benefits, keep these disadvantages in mind before you decide to get your own credit card.
- Risk of Overspending. Since you’re borrowing money you haven’t earned yet, it can be tempting to spend more than you can afford. You might fall into a credit card debt trap if you don’t control your spending. Remember to always live within your means.
- High Interest Rates. Compared to loans, credit cards have higher interest rates. If you miss just one payment or carry over a balance, your monthly payments will increase. Avoid paying interest by consistently paying off your monthly balances in full.
- Penalty Fees. Late payments and exceeding your credit limit come with penalties. Aside from dealing with the interest, you’ll pay more for a bunch of penalty fees. So always make sure to don’t miss a payment and avoid maxing out your credit.
- Risk of Fraud. If you are not careful when using your credit card, hackers might steal your personal information and use your card without you knowing it.
Credit Card Fees You Need to Know
The convenience of a credit card for beginners comes with several costs. Some fees are avoidable; some are not. You can avoid certain credit card fees by making full and timely payments or choosing the right credit card.
- Annual Fee. Most credit card types charge an annual fee ranging from PHP 300 to PHP 6,000. Generally, the higher the annual fee, the better the benefits. Premium cards charge higher fees because of their exclusive perks. Some banks may also waive the fees for the first year while others waive the annual fee for life.
- Finance Charge. It is the interest added to your total credit when you fail to pay off your balance in the previous month. Monthly interest rates on credit cards in the Philippines range from 2.00% to 3.54%. You can avoid them by always paying your balance in full and on time.
- Late Payment Fee. Aside from the finance charge, you will be charged with an additional fee when you fail to pay your credit on time. Some cards may waive this for the first year, but after that, cardholders will be subject to a late fee. The rate ranges from 2.25% to 8% of the total amount due or PHP 300 to PHP 750, whichever is higher.
- Over-the-Limit Fee. Usually ranging from PHP 500 to PHP 1,500, this fee is charged every month when your credit card has reached its credit limit. Not all credit cards charge over-the-limit fees. If yours doesn’t have it and you exceed your credit limit, the acquiring bank will automatically decline your transaction.
- Cash Advance Fee. You can withdraw money using your credit card, but it comes with a price. The cash advance fee is usually around 5% of the amount you borrowed. Cash advance balances have higher interest rates than regular credit card charges. This transaction has no grace period so it needs to be paid off quickly to avoid debt.
- Foreign Transaction Fee. When you use your credit card abroad, you’ll be charged with this fee ranging from 0.85% to 2.50% of the foreign transaction amount. Mastercard and Visa credit cards also impose an additional 1% assessment fee. Avoid this by choosing a credit card that doesn’t charge foreign transaction fees.
General Credit Card Qualifications
- At least 21 years old
- Filipino citizen or foreigner living in the Philippines
- Home, office, or business location near a branch of the issuing bank
- Active landline number or mobile phone number
- At least 1 year of regular employment status or at least 2 years of profitable business for self-employed individuals
- Minimum gross annual income ranging from PHP 120,000 to PHP 1 million
Credit Card Application Requirements
- Completed and signed credit card application form
- Valid ID bearing credit card applicant’s photo and signature
- Employed applicants: latest BIR form 2316, Certificate of Employment, latest payslips of up to 3 months
- Self-employed applicants: latest BIR form 1701, latest financial statements
- Foreign residents: Alien Certificate of Registration or Immigrant Certificate of Registration and Work Permits
How to Apply for a Credit Card
When you’re applying for a credit card for beginners, expect a straightforward process. You can apply in-person at a branch of the issuing bank. For your convenience, you can also apply online from your chosen credit card provider’s website.
Steps for In-Person Credit Card Application
- Pick the best credit card for your needs, lifestyle, and budget. Let Moneymax help you choose the perfect one.
- Go to the nearest branch of your chosen credit card provider.
- Fill out and sign an application form.
- Submit photocopies of the required documents. The bank staff may ask you to present the original copies for verification.
Steps for Online Credit Card Application
- Visit the bank’s website.
- Fill out the online application form and choose your preferred credit card type.
- Upload scanned copies or clear images of the required documents to the online form. You can also send them to the bank via email.
- When you have completed the form, click the Submit button.
Processing of a credit card application, which includes credit history checks and verifications, can take two to three weeks. Feel free to contact your bank for a follow-up or check your credit card application status online. Upon approval, your new credit card will be delivered to your home or work address.
Things to Do After Receiving Your Credit Card
- Sign the back of your card. This is for your own security and convenience.
- Activate your credit card. Your new card comes with instructions to activate your credit card. It usually involves calling the bank’s hotline or sending an SMS.
- Link your credit card to your banking app. Monitor your credit card transactions and view your monthly billing statements on the go with your preferred banking app. You can also schedule your credit card payments online to avoid missing a due date.
- Read the terms and conditions. Make sure to read and understand the fine print before using your new card. Take note of the credit limit, rewards, and other benefits, as well as the annual fee, finance charge, and other credit card fees.
- Store it in a safe place. Put your card in your wallet if you’ll use it often. You can also place it in a secure drawer at home if you’ll only use it for emergencies.
Find the Best Credit Card for Beginners with Moneymax!
We know how exciting it is to own a credit card, but don’t just go for a card that’s cheap or full of freebies. It’s always best to explore and compare your options. But with an entire roster of credit cards out there, how do you start looking for “the one?” Don’t worry, Moneymax is here to help!
Take advantage of our free comparison platform to compare and find the best credit card for beginners. Moneymax will assist you until you score the perfect credit card. And the best part? Our services are free! Start comparing below so you can live your life to the fullest.